Corporate Governance

Unit- III

What is it?
The system of rules, practices and
processes by which a company is directed
and controlled.

What is it?
Corporate governance includes the
processes through which corporations'
objectives are set and pursued in the
context of the social, regulatory and
market environment.

What is it?
Governance mechanisms include
monitoring the actions, policies, practices,
and decisions of corporations, their
agents, and affected stakeholders.
Corporate governance practices are
affected by attempts to align the interests
of stakeholders.

Definition
Corporate governance system is the
combination of mechanisms which ensure
that the management (the agent) runs the
firm for the benefit of one or several
stakeholders (principals). Such stakeholders
may
cover
shareholders,
creditors,
suppliers, clients, employees and other
parties with whom the firm conducts its
business.
Goergen and Renneboog

Definition
Corporate governance is about the
whole set of legal, cultural, and
institutional arrangements that
determine what public corporations can
do, who controls them, how that control
is exercised, and how the risks and
return from the activities they undertake
are allocated.
Margaret Blair,

Principles of Corporate
Governance
1. Rights and equitable treatment of
shareholders
2. Interests of other stakeholders
3. Role and responsibilities of the board
4. Integrity and ethical behavior
5. Disclosure and transparency

Why is it needed?

Corporate Governance as Risk Mitigation

Regulation of Corporate
Governance
The organizational framework for
corporate governance initiatives in India
consists of :
the Ministry of Corporate Affairs (MCA)
and
the Securities and Exchange Board of
India (SEBI).

Regulation by MCA
MCA through its various appointed
committees and forums such as National
Foundation for Corporate Governance
(NFCG), a not-for-profit trust, facilitates
exchange of experiences and ideas
amongst corporate leaders, policy makers,
regulators, law enforcing agencies and
non- government organizations.

Regulation through SEBI

SEBI monitors and regulates corporate
governance of listed companies in India
through Clause 49.
This clause is incorporated in the listing
agreement of stock exchanges with
companies and it is compulsory for listed
companies to comply with its provisions.

Companies Act as a Regulator

The Companies Act, 2013 got assent of the
President of India on 29th August, 2013 and
it was enacted on 12th September, 2013
repealing the old Companies Act, 1956.
The Companies Act, 2013 provides a formal
structure for corporate governance by
enhancing disclosures, reporting and
transparency through enhanced as well as
new compliance norms.

Apart from this.

Other Regulating Acts

The Monopolies and Restrictive Trade
Practices Act, 1969 (which is replaced by
the Competition Act 2002),
the Foreign Exchange Regulation
Act,1973 (which has now been replaced
by Foreign Exchange Management
Act,1999),

Other Regulating Acts

the Industries (Development and
Regulation) Act, 1951 and
other legislations also have a bearing on
the corporate governance principles.

Thank you